Is it time to buy the dip in gold?

• We do not think gold is a reliable “safe haven”. Historical boom-and-bust cycles and sharp corrections, including a recent 6% single-day drop, have shown its volatility.
• Gold does not generate earnings, dividends, or interest. Its price is heavily influenced by investor sentiment and macro narratives, making valuation especially challenging.
• There is also an opportunity cost in holding a non-productive asset like gold. Capital allocated to gold forgoes predictable returns from interest-bearing assets.
• Gold still maintains relatively low correlations with major asset classes, offering some diversification, but its effectiveness as a portfolio diversifier has diminished; recommended allocation is 0–10% for balanced portfolios.
• Our take for investors is to avoid buying the dip in pursuit of capital appreciation. For investors looking to use gold as a portfolio diversifier, we recommend a portfolio allocation of 0% to 10%.

While there has been a recent dip in gold prices, gold has outperformed many traditional asset classes this year, including US equities, global stocks, and European markets, as investors seek protection against inflation, geopolitical risks, and market volatility (Figure 1). Several research firms – including Goldman Sachs and HSBC – have also raised their target prices for gold, reflecting expectations of further upside. While some analysts have highlighted gold’s short-term attractiveness, we believe the risks outweigh the potential gains.

In this article, we share our take on gold and why you should not buy the dip.

Figure 1: Year-to-date performance (in SGD terms)

Not a reliable “safe haven”

Gold is often called a reliable safe haven, but history tells a different story. Its reputation for stability masks the reality that gold can be just as volatile as the assets it is supposed to protect against. The recent 6% plunge in a single day last week was its largest single-day drop in more than a decade. It serves as a reminder that gold is far from immune to market turbulence, hardly the hallmark of a reliable store of value.

While central banks, particularly in emerging markets like China and India, have been accumulating gold as part of their diversification strategy and may appear to be driving gold prices higher, in reality, the bulk of gold buying has been coming from investment demand i.e. gold-backed ETFs (Figure 2). In other words, the recent strength in gold prices has been driven more by ETF inflows and investor positioning rather than physical consumption.

This means that gold prices are increasingly influenced by shifts in market sentiment and trading flows rather than by sustainable, fundamental drivers. When investor sentiment turns or yields rise, these inflows can quickly reverse, leading to sharp price corrections.

Figure 2: Annual Breakdown of Gold Demand

The modern era of gold trading, which began after the collapse of the Bretton Woods system in 1971, has been marked by repeated boom and bust cycles. After peaking at an inflation-adjusted high of roughly USD 3,300 per ounce in 1980, gold languished for nearly two decades, losing more than 80% of its value before bottoming out in 1999. Subsequent rallies during the Global Financial Crisis, the European debt crisis, and most recently the pandemic, were largely driven by fear rather than fundamentals, and each was followed by steep corrections once the panic subsided.

Gold’s price may surge during times of uncertainty, but that does not make it stable. It only shows how dependent it is on waves of fear and sentiment. As the recent sell-off reminds investors, gold’s shine as a safe haven is more illusion than insurance. Investors seeking stability have more reliable alternatives such as money market funds, short-term bonds, or government securities.

Hard to value

It is important to recognise that gold is a tangible but non-productive asset. Unlike stocks, bonds, or real estate, gold does not generate earnings, interest, dividends, or rental income. Its value is not anchored in conventional fundamentals such as cash flow or corporate profitability. Hence, this makes it difficult to determine fair value at any given time.

Furthermore, as mentioned earlier, gold’s price is largely influenced by investor sentiment, risk appetite, macroeconomic narratives, and geopolitical events. This makes it highly volatile in the short term, as buying and selling decisions are often driven by perceptions of safety, inflation hedging, or currency movements rather than intrinsic economic value. However, sentiment is inherently difficult to value - it cannot be quantified or modelled - making it especially challenging to value gold with any precision.

In essence, when you buy gold, you are buying sentiment and perception, not productivity. Its performance ultimately depends on market psychology, which is why we do not recommend entering the gold market in pursuit of capital appreciation or as a safe-haven investment.

Opportunity cost of holding a non-productive asset like gold

Allocating capital to gold carries a significant opportunity cost. Every dollar invested in gold is a dollar that could earn predictable returns from interest-bearing instruments or dividend-paying securities. For instance, US Treasuries currently yield around 4%, while Singapore Government Securities (SGS) offer about 2%. By holding gold instead, investors forgo these guaranteed cash flows, which can compound meaningfully over time.

Even over the long run, gold’s performance hardly justifies its reputation. A USD 100 investment in gold in 1971 would be worth around USD 7,000 today, respectable but dwarfed by the USD 27,000 return from the S&P 500 over the same period (Figure 3). This illustrates gold’s opportunity cost: by holding it, investors forego potentially higher long-term returns from equity markets.

Figure 3: Investing USD 100 in the S&P 500 back in 1971 would have generated greater returns than investing the same amount in Gold

Furthermore, heavy gold allocation exposes investors to volatile price swings without any income buffer. Gold ties up capital in an asset whose performance is largely sentiment-driven rather than backed by tangible economic value.

Gold does have some value despite its flaws

To be fair, gold isn’t completely without merit. Despite its flaws, it has shown some value as a portfolio diversifier.

While correlations have risen over the years, gold still maintains a relatively low correlation with other major asset classes, making it a somewhat useful portfolio diversifier. Historically, gold has had near-zero or even negative correlations with equities and bonds, offering valuable protection during periods of market stress.

Recent data shows that these relationships have strengthened modestly. Between October 2019 and October 2025, gold’s correlation with US equities rose to 0.09, and with US Treasuries to 0.38, compared to near zero in the long-term period since 1971 (Table 1).

This indicates that while gold now moves more in tandem with other financial assets than before, it still maintains a relatively low correlation overall. As such, gold can continue to offer diversification benefits within a balanced portfolio, though its effectiveness may vary depending on broader macroeconomic conditions and liquidity trends.

In short, while we do not think it is advisable to buy gold in pursuit of further rallies or to rely on it solely as a safe haven to preserve capital, we acknowledge that gold does have some value as a portfolio diversifier. For investors looking to use gold as a portfolio diversifier, we recommend a portfolio allocation of 0% to 10%.

Table 1: Correlation between Gold and other asset classes

Do not buy the dip

For investors seeking to buy the dip in the hope of further rallies, or holding it as a supposed safe haven, our advice is simple: don’t.

Its value is driven by sentiment, difficult to quantify, and it does not provide income or reliable protection. For those seeking a safe place for cash, short-duration bond funds, bond ETFs, or government securities such as iFAST SGD Enhanced Liquidity Funds, LionGlobal SGD Money Market Fund, Fullerton SGD Cash Fund, and Amova Short-Term Bond Fund SGD are more dependable alternatives.

Related article: 3 ways to manage your cash – suitable for all investors!

For investors who are looking to use gold as a portfolio diversifier, we recommend a small portfolio allocation of 0% to 10% into products like SPDR Gold Minishares (NYSE: GLDM).

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.